Machine Trading by Ernest P. Chan

Author:Ernest P. Chan
Language: eng
Format: epub, pdf
ISBN: 9781119219651
Publisher: John Wiley & Sons, Inc.

Can we modify the VX strategy to reduce drawdown and improve the pitiable Calmar ratio? Since the ES future's returns anticorrelate very well with that of the VX future (Chan, 2013): We can buy VX and ES (with number of contracts in the ratio 0.3906:1) whenever VX is in backwardation with a roll return of −10 percent or less, and vice versa when it is in contango with a roll return of 10 percent or more. The Calmar ratio over the same period as Table 5.1 is 0.55—an improvement over the short‐and‐hold VX strategy, but not by much. See Figure 5.2 for the equity curve.

Figure 5.2: Cumulative returns of VX‐ES roll returns strategy

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